Statistics and demographics tell us that there is a wave of individuals who are retiring or who are very near. That holds true in my practice as well. A major impetus for new business has been people who want to take inventory of their finances, consolidate their investments from multiple institutions and formulate a plan for their post-work future.
So much effort is spent getting to retirement. Most people have spent 30 years working and saving to reach the goal and it may have seemed like once you got there, the planning would be complete. What may have been lost in the discussion is the importance of a strategy to draw down on the investments and plan retirement income.
Let’s look at the many variables to consider.
When does a person start receiving Canada Pension and Old Age Security?
You can start CPP as early as age 60 and receive a reduced amount. Or, you can delay the start of either CPP or OAS as late as age 70 and enjoy very meaningful increases to your benefits. What would be best for you?
How much should a person (or couple) withdraw from their RRSPs/RRIFs and when should that begin?
Every dollar withdrawn must be reported on your tax return. Take too much and you pay a high rate of tax and maybe face a clawback of your OAS. Take only the minimum required and you may have too much in your plans when you die and pay tax on what remains at the highest rate. Where is the sweet spot?
What if you have non-registered and/or corporate investments that generate taxable investment income?
Do you use the dividends and interest you earned as part of your cash flow or reinvest them? How do you position different securities between non-registered and tax-free savings accounts to minimize tax? If you have a corporation, do you have tax-free amounts that you can pull out of the corp or do you need to pay yourself a dividend that is taxable? What will that mean for your estate?
Do you or your spouse receive a workplace pension?
Is it indexed? What amount would be paid to a surviving spouse if you die first? How should you split the income from it on your tax returns?
The way one moves these levers can have a staggering effect on how much after-tax income a person receives and the value of their estate. It can change monthly income by thousands and your net worth at death by tens or hundreds of thousands!
Effective planning can optimize these outcomes based on your goals and priorities. Seek advice and make a plan that puts you in the strongest position and is aligned with what serves you and your family best.